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comments:

"I will now await the MMT onslaught..."We agree with you. The euro is a damn awful idea.This from 1992:http://www.lrb.co.uk/v14/n19/wynne-godley/maastricht-and-all-thatMost MMT economists warned about the euro in late 90s and early 00s but were ignored.I've never understood the obsession with gold. What's it good for? You can't eat gold ;)The big problem with the euro is the central bank (ECB) is out of control and refuses to cap yields. There is no sensible union with fiscal transfers also.This combined with the GSP deficit rules meant the eurozone was screwed whenever a big recession hit, and blew out the automatic stabilisers, there would be serious trouble.

"It's just the commodity that has been most universally accepted as 'money' for an awful long time."So what? There is not much gold left to be found. The sterling block countries recovered much faster in the 30s depression than the gold block countries.MMT supports a sound currency. That's what the Job Guarantee is about:Maintaining a sound currency is harder than it may seem. Various techniques have been tried. A classic one is the gold standard. The government maintains a buffer stock of gold and agrees to sell it for its currency at a fixed price. If its currency begins to look soft, people just swap it for gold. This stabilises the currency by sterilizing the excess. The policy also signals the government’s commitment to sound currency: if it tries to cheat by buying things with an inflated currency, all it ends up doing is draining its gold buffer.

There are many problems with the gold standard. It holds the government back from responding to periods of high unemployment with aggressive fiscal policy. It also drives a lot of pointless investment in gold speculation – pointless because gold isn’t actually useful for very much.

The job guarantee uses the same principle as the gold standard with labour instead of gold. By hiring everyone willing to work at a living wage, the government maintains a buffer stock of labour. If the currency looks soft, people will hire workers out of the buffer stock, effectively swapping cash for labour. Again this sterilizes excess cash, since the government is no longer issuing currency to pay the workers who are now privately employed. On the other hand, if people prefer to hold currency, they can leave workers in the guarantee programme and keep their cash.

Again there is an automatic stabilizer on the currency. Again, the government signals its commitment to sound money: if it tries to pay with inflated currency, it just ends up draining its labour buffer. The job guarantee has all the advantages of the gold standard, with the added bonus of guaranteeing 0% unemployment at a living wage and driving investment in people rather than gold.

Gold is a "numeraire"when you fix the rate of exchange of currency and gold, then gold becomes the "numeraire." The numeraire is the criterion by which what serves as token money is converted to a fixed value. All other prices fluctuate in relation to that fixed value. Anything could serve as the numeraire, gold, silver, a measure of some grain like wheat, oil, a measure of energy such as a BTU, a unit of labor, etc. Whatever serves as the numeraire is money-like, enough it may not actually be exchange in transaction itself but only tokens of it.

Fact is, most money only has value because people need it to pay their taxes."That's not the point Mark. The point here is about using a buffer stock of some sort to control inflation. It can be:- gold- forex- wheat- labourEtc..You are correct in saying taxes drive money. LVT will work somewhat as an automatic stabiliser, as will sales and income taxes.The point of this is to use strong autos stabilisers of some sort to control inflation.

MW. You will note in my comment I remarked 'gold or nation state [i.e. 'land]. And indeed, people have have used all sorts of things as money. Doesn't 'rupee' mean 'Ox'? As in measuring your 'money' or 'wealth' so many Ox's.? So what? Gold has historically satisfied your own 'tried and tested' rule.

R. Generally, nope. All of that guff relies on 'rules' and functionaries and governments. It WILL go wrong. History is on my side in that argument. 'Money' was the creation of the market, not the state. Return that freedom. But, I recognise that that will need to accompanied by bank reform. But, note well, such reforms are only to correct the (deliberate?) corruptions by politicians and functionaries. I have faith in free people much more than I do in governments and functionaries and 'rules'. There is far too much navel gazing in all these debates around how we can have sound money.

When they set up the Bank of England, the Tories set up a rival Land Bank "to raise a loan" (for the King to wage war with presumably)"and issue notes secured on freehold land".It didn't last long and wasn't helped by its big proponent Chamberlain who talked somewhat at a venture AND it also had the rivalry of the BoE to contend with BUT this looks like one of the many "what ifs" in history .Details in Halley Goodman's paper (on Net) "The Formation of the Bank of England"

L, sure, you can use oxen or anything, but you dare missing my point. Those things are commodities and have inherent value.

But once debts are denominated in oxen or gold, then those debts are not oxen or gold, they are just debts.

R, don't nit pick.

What I meant to say, obviously, was "government issued money only has value because people need it to pay their taxes."

It's exactly the same as rationing vouchers. They had value - because you have to give them back if you want food. They cost nothing to print, were handed out for free and the government did not grow or provide the food. Makes no difference, they had value. People could sell them.

In the same way, money has value because you need to give some back if you want to earn money without going to prison.

MW Debts need denominating in something. That something could be ox's. Or it could be so many ounces of gold. the fact that you can make transactions a little bit easier by setting up a system of bills of exchange (backed by cows or gold or whatever) is just markets making things efficient.

Overall I really think that we are all blinded by nationalised money. No-one nowadays thinks of private money. It's one of the most successful bits of government propaganda to successfully demonise 'private' money. Why? Because as Rothschild knew, if you control (England's) money you control (England) the plebs.

L: "a system of bills of exchange (backed by cows or gold or whatever)"

That's the point though. You can denominate debts in what you like, they are only worth as much as the borrower's willingness and ability to repay.

I own an ox. An ox is an asset.If I lend somebody that ox, then I have a financial asset - the borrower's promise that he will repay me one ox or equivalent value.The borrower has an ox and a financial liability.

So the number of oxen has not changed - but we have split the zero into a financial asset and a financial liability.

Oops, I deleted Random's comment by mistake, which is as follows:------------------" It's one of the most successful bits of government propaganda to successfully demonise 'private' money. Why? Because as Rothschild knew, if you control (England's) money you control (England) the plebs."

Anyone can create money, the trick is getting it accepted. How will this new private money be accepted?

Let's say I do Lola's lawn, Mark Wadsworth does some paperwork for me, Bayard helps Mark create an IT programming, etc. This all works fine if we know and trust each other (social credit) but along comes money and allows those same transactions to take place.

MW, clearly taxes drive money. But that is not the only thing that gives currency its value. Once it becomes widely used, fiat currency is used among private transactions and other uses and not just to pay tax. Sorry if this is 'nitpicking' but it is an important point.

MW. Quite. We are not disagreeing. We are discussing. Much of it semantics.

My general position is that markets - aka 'free people' - will sort this out better, always better, than governments or other 'authorities' - as long as there is the Rule of Law, strong property rights and private contracts are enforceable and not subject to political or bureaucratic whim.

Overall the whole 'bad money' issue is connected to the deliberate weakening of those fundamentals.

L, who will enforce debts in your system? How will collective goods and services (infrastructure, policing, merit goods) be provided?MW, there are other reasons why currency has value. One is simply force of habit. Also, debts tend to be written out in the national currency, which along with legal tender laws give some value.But legal tender laws do not explain this. We economies have a sizeable "informal" sector that still use the currency.

L, fine. Completely reasonable. MMT has never been about the size of government. You can have small or large government in any combination of things it does. If you want a small government, cut taxes and spending.It's not 'bad money' that's the problem. Stop thinking about money. It's always about real resources. Government spending can be wasteful. What it wastes is real resources. The cost of anything is the real resources it uses. If the government spends money on a non-job creating anti-smoking leaflets, then that person could be doing something else. Plus, that person can buy things with the money and get real goods and people may see this distribution as unfair.As a (very) poor analogy, money is like virtual memory. The problem is the gold standard people and the Mises Institute are worrying constantly about overruns and think hyperinflation is just around the corner.

R, trading in vouchers was probably illegal, but it took place between private actors.

As to your point about 'money' vs 'real resources', I heartily agree.

So to stick with rationing vouchers, if there are only enough eggs for each family to have three and the government hands each family vouchers for six eggs, then that debases the value of the voucher - half of vouchers cannot be used.

But printing those extra vouchers neither increases nor reduces the amount of real resources - eggs and other food.

Unless of course farmers have capacity to produce four eggs per family - if they can only legally sell three then they will probably only produce three (ignoring black market sales), if they are now allowed to sell up to six, they will produce four.

So it's a question of balance i.e. not running a big surplus or deficit.

MW, I would agree but things are far more complicated in real life. Things *never* run at full capacity.Especially in a service based economy like the UK. There are very few hairdressers who can't fit in an extra haircut.

http://www.3spoken.co.uk/2013/02/musings-on-mmt-firming-up-soft-bits.html?m=0This article explains the MMT view on quantity expansion fairly well.The problem is "pump priming" old left. Pump priming (indiscriminately spraying money) props up old skills and jobs not needed. This will result in inflation before we get near full employment. Direct job creation strategies reduce the cost of hiring allowing greater private sector employment for a given inflation level.

@MWDon't use the term "social credit" as a generalisation (see above 12.57): it is a highly specific money reform suggested by Major Douglas whereby you work out the value of goods and services when the economy works at full potential; compare this with the amount of money actually in circulation ( much smaller), then make up the difference/ deficit with a National Dividend or unearned income for all, paid monthly. Very sensible, therefore deemed impossible by the people who matter who believe that the banks lend proper savings to proper firms and don't create money.

DBC Reed,Thanks. I didn't know about that. "compare this with the amount of money actually in circulation ( much smaller), "I can see a problem with this. It is money changing hands that causes stuff to happen, not total money.Plus it suffers from Hayek's calculation problem.

"then make up the difference/ deficit with a National Dividend or unearned income for all,"The other problem with this is goods and services is a general term. This is exactly the kind of "pump priming" that could lead to high inflation.

D. Don't think so. 'Currency' itself doesn't necessarily have any value. The 'value' is created by the transaction. Currency intermediates that transaction. Both parties will use whatever currency they can agree from their own perspective. Where currency has a 'value' is it is said to be the equivalent of 1 oz. gold, or half a cow, say. And the value of those things are also subjective they still have no 'value'.

R. 'pump priming' just leads to the usual 'mis-allocation of capital'. Bad idea. It only gets inflationary if money is printed to achieve it. It's then something for nothing. Prices will rise. Further problem is that pump priming will distort production which as you say will lead to shortages elsewhere and push up the price of production. And probably land rents.

As you say the value is created by the transaction , or realised at the point of the transaction. And it is the borrowers who sell things, in the transaction, to honour the debt contract. It is those things that are the value, as valued by the deposit holder.

@R"Money changing hands is what causes stuff to happen" absolutely! The big rival to Douglas and Social Credit among seriously cool supporters of monetary reform pre-war was Silvio Gesell and his demurrage or Stamp money. This was pretty simple too: you had to stick stamps on the bank notes by specific dates: fail to do so and they immediately lost their value. The incentive was to pass them on as fast as possible before the due dates so there was a very high velocity of money with the same volume. Every where it was tried ,mostly in the Tyrol, it was a resounding even dramatic success.(The money from the stamps operated as a local tax.) It had to be shut down by the Austrian government obviously.(Keynes is accused of plagiarising Gesell whom he praises to the skies in the General Theory BUT Gesell saw the dangers of land value inflation and half his theory is based on land: tax/nationalisation/Henry George which Keynes considered beneath his attention.) There is Gesellian experiment going on in the Tyrol now: the Chiemgauer which circulates at 5.41 alongside the Euro which manages a lowly 1.65.

"It only gets inflationary if money is printed to achieve it"All spending by any sector is potentially inflationary. It don't matter from whence it came.Secondly, governments spending is always "printing money."Bonds, Reserves and Cash are the same thing really. All types of money.

"'Currency' itself doesn't necessarily have any value. The 'value' is created by the transaction. "I think you are thinking on the right lines... ButOK, if you think that why not give me all of your worthless 'currency'? So then is gold not money? Or does it have no value?Clearly currency DOES have value, and not just gold.Thought experiment - imagine if instead of the govt tax it requires you to produce so many goods e.g. build 1 school per taxpayer.The government 'taxes' when it spends. Wrap your mind about that. That's where the value is realised.

R. This is getting seriously out of hand. You are massively over-complicating things. 'Money' is simply a commodity that is generally acceptable in an exchange economy. The difficulties and complications come about when it gets nationalised and used as a tool of manipulation by politicians and their bureaucratic satraps. Left to itself the much maligned 'market' will develop perfectly acceptable money. Anyway money is the invention of the market, not governments.

@LLeft to itself the much maligned market shoves a disproportionate amount of money into landed property.This was noticed hundreds of years ago. Land taxers believe in letting the banks go about their dodgy business while blocking them from over-investing in landed property with an effing great land tax.Sovereign money people and other bank reformers believe in getting hold of the banks and choking off the flood of money into property at source. If that involves nationalising all the banks what's the problem: the banks shouldn't be creating the nation's money anyway. (See Martin Wolf FT "Strip private banks of the power to create money".)The Labour Land Campaign( a group of scamps and scoundrels who question all that's sacred in British life i.e. the property market) discussed sending its most prominent figure round the banks to say "If you don't support and get LVT, you'll have another property bust and get nationalised." They didn't send him round; didn't seem that keen.But the question remains for the banks : LVT(to keep them on the straight and narrow) or nationalisation ( maybe Ellen Brown's Public Banking.)

DBCR. It goes without saying that reverting back to the 'tried and tested' (and least economically damaging) taxes on land rents (including mortgages via a bank asset tax) are de facto part of stopping rent seeking. IMHO rent seeking is probably the only true 'market failure' there is, because land is in fixed supply.

You are confused between 'the nation's money' and 'money'. The chief problem with today's bad money is that it is both nationalised and farmed out to crony outfits to produce as much as they fancy.

De-nationalising money, and returning to a free banking system subject to the full discipline of the 'market' - no socialised losses - and returning the right to us to make our own money will deal with a lot of that. If you really insist on keeping a lender of last resort then it will be just that, and will lend at penalty rates.

Personally the one piece of authoritarianism I might engage in was to ban limited liability joint stock banks.

I think the most likely thing that will happen if we stop using the pound, will be people will use some other foreign currency. This looks like a huge hassle, especially for buisnesses. Look at what happened in Zimbabwe when the currency was mismanaged. People use all sorts of foreign currency there. That is probably what will happen.

"De-nationalising money, and returning to a free banking system subject to the full discipline of the 'market' - no socialised "OK. I have some slightly ideas about this but good point. "Free banking" was tried before and lead to frequent depressions.How are you going to lend at last resort if banknotes are floating against each other? At the current system commercial banks peg to the central bank and each other.

"and returning the right to us to make our own money will deal with a lot of that"You already can. The trick is getting it accepted.

I stand corrected. Most seem to be due to land price bubbles. I refer to the 19th century "panics" in the US and UK.The lack of deposit insurance and gold standard did restrict ability to respond though.

Lola complains about people overcomplicating things and then proposes the free-private sector creation of money.So you go to Tescos ,pay in pounds and get change back in Tesco currency. Or your employer chooses to pay you in his own brilliant currency. The Truck Acts were passed to make sure everybody was using the same national coins and notes.In Frontier US you could carry your savings in Eastern seaboard bank notes and then they wouldn't be accepted out West.I had Scottish bank notes declined in Manchester pubs.@R Tried to read the 3spoken piece but got no farther than the statement that banks supply money created by the government to start -up businesses,(though another geezer does have a paper on state ownership of banks)

", ALL recessions are due to the 18 year land price boom bust cycle."Falling house/land prices do not necessarily result in a recession. In fact they can be a good thing. You need to offset with government deficit spending. All that happens is people pay off debt and save instead of spending. Tax cuts to encourage saving and spending increases focused on the unemployed.Not all recessions are due to housing/land bubbles. Introducing LVT will stop land/house price bubbles which result in credit bubbles. To reduce severety and likelihood of recessions stop bubbles and have strong automatic stabilisers.For example:Land prices rose through the early 00s recession in the US. That was due to a stock bubble.Roosevelt recession in 1937 due to tightening fiscal policy.Osbourne nearly causes recession in 2012.Also, you can have recessions due to supply side issues. Various eurozone countries from the end of 2011 to 2013.And the Greek depression (2015/now) is due to use of overvalued currency harming exports and austerity.Recessions often occur after natural disasters etc..Etc, etc...

DBC Reed, "Tried to read the 3spoken piece but got no farther than the statement that banks supply money created by the government to start -up businesses,"Obviously didn't try very hard then. They don't at the moment but the proposal attempts to get them to do so.

R, it is not just falling land values which trigger recessions, it is sudden contraction in credit, together with falling land values (the illusion of wealth). All other types of recessions areonor in comparison.

@RThe statement in question is that banks are not now doing their job which is " the distribution of new state backed money to those who can make use of it to develop the capital of the country." This is so ambiguous as to fall within my interpretation: that he's saying the distribution of state backed money is the generally accepted job of the bank-which it isn't, not by the banks who see their role as to create money and pass it off as loans.